Estate Planning With The Ultra-Affluent Using PPLI

What is the difference between the affluent and the ultra-affluent when it comes to wealth thinking?  Most of the time, the affluent are trying to build more wealth while the ultra-affluent are trying to keep the wealth they have. In today’s market, the typical solutions that are presented to the ultra-affluent are private placement life insurance (PPLI) and private placement variable annuities (PPVA). This marketplace is growing and offers more carrier solutions than ever before. The minimum client suitability for these solutions is around $20 million in net worth and $5 million in liquid net assets. Advisors have a tendency, when given these two options, to default to the PPVA solution because of two primary reasons. Either it offers ease of issue and a more transactional sale, or they are concerned with the insurability of their primary client, so they tend to disregard the life insurance option. What they should evaluate, before defaulting to that annuity solution, is a survivorship MEC PPVUL because it aligns better with the primary client concerns. 

One of the biggest values of PPLI is the fact that each policy is specifically designed for the customer.  This allows for the client to have input on the asset management selection and gives them options in the way the policy is priced and structured. PPLI policies being placed today are not designed to maximize the death benefit, since a primary focus is minimizing the cost drag on the investment portfolio. The usual policy design is for a minimum non-MEC death benefit if they want to maintain the tax-advantaged nature of withdrawals and loans down the road. However; ultra-affluent clients typically care more about the accessibility of that cash value if they need it, and care less about its ultimate tax treatment. Their first priority is to maximize cash value accumulation within the policy in order to offer a large, tax-free death benefit to their heirs. This goes back to their main concern being maintaining the wealth they currently have for their family, as opposed to building it or accessing it. In the situations where the primary insured is highly rated or uninsurable, there is the option of survivorship products as well as PPVAs. Most of the large financial institutions sell private placement variable annuities because they don’t want to worry about face amount retention or underwriting issues, but this is doing a disservice for most of these clients as the ultimate death benefit is taxable and that is part of what the clients and their families are trying to avoid. Using a MEC policy maintains the tax-free death benefit for heirs while keeping costs low and reduces the net amount at risk for the insurance company. Enhancing the insurability of the overall policy by bringing in the spouse with a survivorship option keeps the tax-free transfer of wealth on the table for the family (if it is an option). 

Private placement products aren’t designed like traditional products, so the marketplace has always been small. At times there have been only a handful of agents in the whole insurance industry that actively worked on PPLI.  The compensation is designed as an “Assets-Under-Management” model, so over time it is very lucrative if you are consistently writing business—but if it is a single case, the time and cost is prohibitive for most producers. Given all the hurdles that are naturally in the way of selling life insurance, PPLI is very easy to place with the people who need and want it.  Almost every family office is aware of it, even if they have not yet used it, and more trust companies are open to the discussion for their most important clients.

Today there are a number of insurance companies active in the market and actually, for the first time, there are a number of companies that are looking at it for the first time.  It is the perfect tool for the appropriate client and situation where the ultra-affluent are looking to “not lose money” and everyone should be aware of how it works.

Dave Wickersham is the founder and CEO of The Leaders Group, the largest distributor broker/dealer in the world for variable life insurance. In the 20 years that the firm has been in business, it has grown into the premier broker/dealer for BGAs, with more than 130 agencies calling it home. He is also a founder of The Life Insurance Center, an application fulfillment center built for BGAs.

Wickersham can be reached by telephone at 303-797-9080. Email: dave@